CCP sub-panel 7 presentation 8 December 2014

Presentation by AER’s Consumer Challenge Panel
(CCP) sub-panel 7
David Prins and Robyn Robinson
Role of the Consumer Challenge Panel (CCP)
AER overall view on CCP advice in the Draft Decision
Environmental considerations
Rate of return
Capital expenditure (capex)
Operating expenditure (opex)
Pipeline services
Consumer engagement
Challenge the businesses and the AER
Reviewed documentation, met with the AER
and JGN, met with JGN’s Customer Council
and with individual large customers,
presented to a public forum organised by
JGN, and toured JGN gas facilities
Provided formal (published) advice to the AER
The newly formed Consumer Challenge Panel
(CCP) played a significant role in our
processes of assessing the proposal before
The panel advised us on issues that are
important to consumers and provided
consumer perspectives, particularly those of
residential and small business consumers.
Previous decision made during a period of Global Financial
Crisis (GFC) concerns
◦ Consumers expecting network prices to reduce
Forecast increase in domestic wholesale gas prices
Overall demand falling / flat
Full implementation of the National Energy Customer
Framework (NECF) in New South Wales from 1 July 2013
New AER Guidelines have been introduced as part of the
Better Regulation program
Much greater involvement of consumers than ever before –
a new process for all parties
CCP advice
Considered proposed rate of
return too high at 8.67%
AER Draft Decision
Reduced rate of return to 6.8%
There may be scope for further reduction
CCP has provided ‘whole of CCP’ advice to AER on rate of return
CCP advice
AER Draft Decision
Concern about
forecast 30%
increase over
approved capex for
Total capex reduced by 18.7% from $1,130.4
million to $918.6 million ($2014–15)
Examine higher
delivery costs for
market expansion
22% reduction in capex for new connections
Driven by reduction in unit rates and a slight
reduction in estimated new connections
Capex reduced from $384.1 million to 299.6
million ($2014–15)
Examine justification 8 renewal and upgrade projects not ‘prudent and
of reinforcement /
efficient’. Capex reduction $19.7 million.
renewal projects
11 augmentation projects not ‘prudent and
efficient’. Capex reduction $8.1 million.
Examine justification All $127.9 million is accepted
of IT projects
CCP advice
AER Draft Decision
Reasonably comfortable with
proposed opex
1.2% reduction in opex from
$789.3 million to $779.7 million
Conditional support for Efficiency
Benefit Sharing Scheme (EBSS)
Efficiency carryover mechanism
Consider Capital Expenditure
Sharing Scheme (CESS)
Not proposed by JGN or by AER
We accept that a CESS is not necessary if AER is satisfied that
JGN’s opex is efficient
CCP advice
Bundling of meter data
services will present a
potential barrier to future
contestability of meter data
AER Draft Decision
The AER found no compelling reasons
not to approve JGN’s Proposal
The AER may review its draft decision in
its final decision should stakeholder
submissions provide compelling reasons
not to merge metering data services into
a single reference service*
* We continue to hold concerns regarding barriers to future
contestability of meter data services
Restructuring of tariffs
Rebalancing of tariffs between residential,
commercial and industrial customer segments
Tariff design to take into account affordability
Presentation of tariff information
New tariffs for energy intermediaries: ensure that
appropriate consumer protections are in place for
customers of gas intermediaries, particularly
users of energy supplied in the form of gas hot
CCP overall advice on consumer engagement
JGN demonstrated a genuine commitment to customer engagement
taking account of CE Guidelines and other sources
Most consumer engagement was at the ‘inform’ level, with some
attempts at ‘consult’ and ‘involve’ levels. (The next levels are
‘collaborate’ and ‘empower’)
Commended JGN for new initiatives, including commitment to assist
vulnerable customers
Opportunities for improvement identified by the CCP
Customer Council – Extend areas where the Customer Council can
add value and fully participate at the ‘consult’ level and beyond
Stakeholder workshops – improvement in design of ‘Willingness to
Pay’ surveys
More comprehensive engagement with large industrial customers and
Community engagement – has been largely centred on JGN’s website,
and registration to receive email updates
Opportunities for improvement - AER
The AER might provide clearer explanation of how consumer
engagement by the network business has influenced the outcome of
the (draft) determination
For example:
- $6.59m step change in opex for Marketing was supported by
customers. What bearing did that have on the AER’s (draft) decision
to include that in total opex?
- Customers supported a proposal to ‘equalise service levels for all
existing customers’ for an additional cost of $0.60 per year for 5
years, and $0.90 per year for the following 15 years. How has this
support been reflected in the draft determination?
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